A star money manager in India made a rookie mistake that cost millions

A screen displays a chart of the Dow Jones Industrial Average on the floor of the New York Stock Exchange (NYSE) in New York, U.S., October 24, 2018. REUTERS/Brendan McDermid/File Photo GLOBAL BUSINESS WEEK AHEAD

  • Investors in Porinju Veliyath's Equity Intelligence lost 44% in last nine months
  • Veliyath blamed the fall in one stock for the rout in investor wealth
  • Veliyath, who has a million followers on Twitter, has lost money on other stocks too

Investments can go wrong, and even the best in the business aren't spared at times. A marquee money manager, Porinju Veliyath, lost 44% of his investors' money in the last nine months and he blamed it on one stock, LEEL Electricals Ltd (formerly Lloyd Electric & Engineering).

In a private letter on January 11, accessed by news agency IANS, Veliyath's firm Equity Intelligence apologised for the 'flawed investment' that eroded millions in value, adding that there may be no benefit in selling it now.

Apart from LEEL, some of the other stocks that Veliyath had earlier invested in– Liberty Shoes, Shalimar Paints, Tara Jewels, Samtex Fashions and Palred Technologies–have also lost significant value in the last one year.

Kerala-based Veliyath is an icon among the country's small investors. He has a million followers on Twitter and rumours of his interest has fired up stock prices in the past. He started Equity Intelligence in 2002 and the growth has been exponential since then, more so in recent years.

At the end of March 2018, Veliyath was managing money worth ₹1,570 crores (nearly $250 million) for some of the country's wealthiest people. Though his fund returned less profit to investors than the benchmark index Sensex in the year, his popularity soared and he nearly doubled the number of clients, according to a filing with SEBI.

Stop digging

Veliyath's fund owned 5.4% of LEEL stock at its peak in October 2017. By end of February 2018, Equity Intelligence owned 8% of LEEL, while the stock had lost over 15% in value. As Veliyath held on to the stock hoping for a better price to exit, LEEL, today, has lost over 85% from the October 2017 peak.

Veliyath has alleged fraud by LEEL's promoters and has sought a forensic audit of the company's books by markets regulator, the Securities and Exchange Board of India (SEBI)." Our investment in LEEL has witnessed a significant capital erosion and I admit that in hindsight it looks a mistake. My assumption that siphoning off in a changing regulatory environment would be difficult appears faulty," he wrote in the letter. But he continues to own the stock.

As the halo around Veliyath's stock-picking ability fades, one of the obvious lessons for investors here is to cut your losses before it's too late.

This may be a good time to remember a priceless quote from global investment guru Warren Buffett, "the most important thing to do if you find yourself in a hole is to stop digging."

(With inputs from IANS)

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